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Why is anyone surprised?

Less than three months ago the European Banking Authority said Dexia SA (DEXB) had passed its so-called stress test with ease. The French-Belgian lender’s July 15 new release carried this headline: “2011 EU-wide Stress Test Results: No Need for Dexia to Raise Additional Capital.”

Then last weekend, 86 days after getting its clean bill of health, Dexia took a government bailout to avoid collapsing. Nobody was surprised this happened. Nor should anyone have been.

The regulators who gave Dexia a clean bill of health were not incentivized to do a good job of credit analysis. They were incentivized to “calm the markets.”

If investors had listened to the speculators, who were incentivized by the profit-motive, they would have avoided Dexia. If investors listened to the government’s appraisal, they were led to the slaughter.

This has happened time and again, but people keep expecting the government will rescue them from the “bad guys.”

Look at Barney Frank and Fannie Mae, or the SEC and Bernie Madoff, or Ben Bernanke and the housing market. The list goes on and on and on.

The short-selling speculators have a huge incentive to get their analysis right. And, in general, they do. Look at government officials and their record in uncovering malfeasance. It’s terrible.

So why do people run in fear from the “bad guys” who almost always get it right, and run to the arms of the government officials who almost always get it wrong?

Beats me. But, they get what they deserve.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.